VW vies for title of world’s biggest company
By Richard Milne in London
Published: October 28 2008 09:34 Last updated: October 28 2008 11:02
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Volkswagen briefly became the world’s largest company by market capitalisation on Tuesday as panic-buying by hedge funds desperate to cover losses caused its value to shoot up by up to €150bn.
Shares in Europe’s largest carmaker soared as high as €1,005 in early trading, having closed at about €210 on Friday. That gave it a market capitalisation of around €296bn ($369bn), higher than that of ExxonMobil, the oil company that closed on Monday with a value of $343bn.
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EDITOR’S CHOICE
Daily View: VW briefly the world’s largest company - Oct-17
Lex: Japanese carmakers - Oct-28
In depth: Auto crunch - Oct-24
Hedge funds hit as Porsche moves on VW - Oct-27
Porsche accelerates towards VW control - Oct-27
Porsche plans to raise VW stake to 75% - Oct-26
VW’s share price was highly volatile on Tuesday morning and was up 50 per cent in late morning trade at €788, giving it a market capitalisation of €237bn ($296bn), still bigger than that of Wal-Mart, Microsoft and General Electric – the second, third and fourth-largest companies in the US.
“I have hedge fund managers literally in tears on the phone,” said one London-based auto analyst. Hedge funds had bet that VW’s share price would fall but after Porsche disclosed it held 74 per cent of the carmaker rather than the previously assumed 35 per cent there was a huge scramble to cover positions.
Analysts and investors said some hedge fund failures were likely because of the size of the losses, which reached about €20bn-€30bn on Tuesday. They also called for a full investigation by Bafin, Germany’s financial regulator, into whether there was market manipulation.
Porsche has denied that it lent its shares out to hedge funds. It said that it revealed it held 74 per cent directly and indirectly to allow hedge funds to unwind their short positions in “an orderly manner”.
Bafin on Monday repeated its comments from last week that it was looking at, but not formally investigating, the share price movements.
But analysts, investors and corporate governance experts said the share price movements were bringing Germany’s capital markets into disrepute.
Max Warburton, analyst at Sanford Bernstein, said: “It is a huge question for regulators and arguably an embarrassment for all European capital markets.”
Christian Strenger, a board member at Germany’s largest fund manager, DWS, and a leading corporate governance expert, said: “It should get the politicians and supervisory authorities to think again about allowing this untransparent situation.”
2008. 10. 28.
[FT]VW vies for title of world’s biggest company
2008. 10. 25.
[Economist] Second time around
South Korea
Second time around
Oct 23rd 2008 SEOUL
From The Economist print edition
Shock, denial, anger and a massive bail-out for good measure
OF ALL the Asian countries worst ravaged by the regional financial turmoil of 1997-98, South Korea has come closest in recent weeks to seeing history repeat itself—not as farce, but as renewed financial tragedy. As its stockmarket has slid downhill and the currency, the won, has fallen by nearly 30% this year, the government has been telling all-comers that the economy is sound and the banks liquid and solvent. Its officials have blamed their troubles on the ignorant or malicious refusal of foreign analysts to believe them.Yet on October 19th the government announced a $130 billion rescue for Asia’s fourth-largest economy. Of this, $100 billion is in the form of guarantees for foreign-currency debts. Another $30 billion—about one-eighth of the country’s foreign-exchange reserves—was to be available to banks suffering a drought of dollars. It followed this up two days later with a promise to spend 12 trillion won ($9.2 billion) to help the building industry—for example by refinancing debts and buying unsold houses. The president, Lee Myung-bak, described the overall economic situations as “more serious” than in 1997, because of the global sweep of the crisis. The government had already appealed to the grass-roots patriotism that helped South Korea through the late 1990s: cutting back on energy bills; buying local products; and surrendering any dollars left over from overseas jaunts.
Mr Lee and his officials, however, are quite right that the economy is on a much sounder footing than in 1997. Banks are better capitalised, big companies less indebted and reserves of foreign exchange bigger than all but five other countries’. The economy has been growing solidly for a decade. Even after the recent buffeting, analysts still expect GDP to grow by more than 4% this year, and by 2.5-3.5% in 2009. That is nowhere near the 7% growth President Lee promised at his inauguration in February, but in the current doom-laden climate it looks positively robust.
One reason for this relative optimism is the shipbuilding industry, one of South Korea’s great success stories. Yet it is also one cause of the financial stresses. There has been a sharp rise in foreign debt. More than one-tenth of the rise is in down-payments for ships still being built, which appear in the accounts as trade credits. And around half of the increase in short-term debt comes from banks hedging their exposure to purchases of shipbuilders’ dollar receivables in the forward market.
That helps explain the way in which the global credit crunch first made itself felt in South Korea—in a shortage of dollars for the banks. Moody’s, a credit-rating agency, estimates that South Korea’s banks rely on foreign sources for 12% of their funding. As inter-bank markets worldwide clammed up, they began to look vulnerable. Standard & Poor’s, another rating agency, this month put seven of them on a “watch-list”, because of the pressure they faced.
The won itself has been battered as foreign investors have fled Korean shares and bonds. Its decline also reflects the current account’s fall into deficit as the cost of South Korea’s oil and other commodity imports soared earlier this year. The government rescue stemmed the tumble in the won and the stockmarket only briefly. As elsewhere, financial catastrophe seemed to have been averted. But also as elsewhere, traders knew that the impact of the market turmoil on the rest of the economy was only beginning to be felt.
[FT]Opec cut fails to stop oil price slide
Opec cut fails to stop oil price slide
By Carola Hoyos in Vienna and Javier Blas in London
Published: October 24 2008 10:34 | Last updated: October 24 2008 20:10
Opec on Friday slashed production but oil prices continued to fall as concerns about the global economic crisis sent crude to its lowest level in 16 months.
The cartel, which produces 40 per cent of the world’s oil, agreed to cut output by 1.5m barrels a day, or about 4.5 per cent, from November. Some members, including Venezuela and Iran, had wanted a cut of as much as 2m b/d.
But the reduction, which in normal times should have led to a jump in prices, failed to stop the slide in the crude price. It fell on Friday to $62.65 a barrel, the lowest level since June 2007, on the strength of the US dollar and falling equity markets.
The prospect of further falls sent investors scrambling for protection, with the cost of insuring against a drop in the price to $50 before the end of the year almost tripling overnight. The price of put options at $50 for December – giving the holders the right to sell then at that price – jumped to $1.50 per contract, up 142 per cent from 62 cents on Thursday.
Edward Meir of MF Global in New York said: “The cartel is pushing against a hostile market environment towards energy, nurtured primarily by the increasingly dire economic backdrop.”
hostile:적의가 있는 nurtured:보살핌을 받는 dire:끔찍한
However, some analysts warned that Opec’s decision would tighten the market in two to three months, resulting in higher prices in early 2009.
Paul Horsnell of Barclays Capital said the market could often be slow to react to a production cut.
“Prices did not bottom for three months after the last cycle of formal Opec cuts began in October 2006,” he said.
Saudi Arabia at first resisted Friday’s emergency meeting in Vienna, which was pushed by Algeria and Libya. Initially the group had widely divergent views on the depth of the cuts but as oil prices fell and put options indicated that traders were betting they could slip to $50 a barrel, Opec members agreed they had to act decisively.
divergent:갈라지는
Rafael Ramirez, Venezuela’s energy minister and one of the most hawkish members of the group, said Opec had to “avoid a price collapse like 1998”, when Asia’s financial crises pushed oil to below $10 a barrel.
Ali Naimi, Saudi oil minister, hinted that Opec could meet in the short term, even before December’s planned meeting. “We’re prepared to meet more often to stabilise the market,” he said.
Opec’s total reduction could amount to as much as 1.8m b/d, or 6 per cent, as members first cut the 300,000b/d they are producing in excess of Opec’s ceiling and then implement the 1.5m agreement.
implement:이행하다/도구
Washington, London and the International Energy Agency, the western countries’ energy watchdog, all attacked Opec’s cut, warning that it could aggravate the current economic crisis. But Opec ministers dismissed the criticism.
aggravate:부담지우다 dismissed:기각하다
“Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude,” the cartel said in a communiqué. Opec went on to explain its action as a way of contributing to more investment in the oil sector, warning that falling prices “may put at jeopardy many existing oil projects and lead to the cancellation or delays of others, possibly resulting in a medium-term supply shortage”.
witnessed:입증했다. jeopardy:위험성
Beyond Friday’s price fall, the key signal for prices in the medium term will be Opec’s adherence to its agreement. Many traders doubt that it will fully implement the cuts, noting that historically the group has managed about a 60 per cent adherence rate. But Chakib Khelil, Algeria’s energy minister and Opec’s president, insisted that the group had “no other choice” and it was having trouble selling its oil as buyers stayed away or were unable to secure letters of credit.
adherence::집착, 충실
Many of the cutbacks will also hit international energy groups working in Opec countries, including ExxonMobil and Chevron of the US, and Total, Royal Dutch Shell, Eni and Statoil of Europe.
Saudi Arabia, which produces its oil without the help of international energy groups, has already quietly cut its production. Other countries will shoulder less of a burden because they produce fewer barrels of oil.
shoulder:떠맞다 burden:짐
But their adherence will be a key indicator of whether Opec is able to act cohesively as it embarks on its most critical but also most difficult challenge in more than a decade.
cohesively:단결력있는 embarks:착수하다
Copyright The Financial Times Limited 2008
scrambling: 애쓰다.
오펙이 감산하기로 결정했지만 석유값은 떨어졌다.(현물:60달러대, 풋옵션 160%상승)
오펙이 꾸준히 감산한다면 분명 석유값은 오를 것이다. 문제는 그들이 약속을 이행하느냐다. 역사적으로 볼 때 60%정도만 약속을 지켰다.
의문점: 오펙은 석유가격을 올리면서 석유를 생산하기 어려워졌다는 말을 했다. 단지 핑계일까? 아니면 진실일까?
2008. 10. 24.
[NLR] FINANCIAL REGIME CHANGE?
New Left Review 53, September-October 2008
As stock markets plunge and governments scramble to bail out the finance sector, Robert Wade argues that we are exiting the neoliberal paradigm that has held sway since the 1980s. Causes and repercussions of the crisis, and errors of the model that brought it to fruition.
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ROBERT WADE
FINANCIAL REGIME CHANGE?
Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an interval of roughly thirty years: the first regime, characterized by Keynesianism and governed by the international Bretton Woods arrangements, lasted from about 1945 to 1975; the second began after the breakdown of Bretton Woods, and prevailed until the First World debt crisis of 2007–08. This latter regime, known variously as neoliberalism, the Washington Consensus [1] or the globalization consensus, centred on the notion that all governments should liberalize, privatize, deregulate—prescriptions that have been so dominant at the level of global economic policy as to constitute, in John Stuart Mill’s phrase, ‘the deep slumber of a decided opinion’.
The two regimes differed in the role allotted to the state, in both developed and developing countries. The Bretton Woods regime favoured ‘embedded liberalism’, as it was later called, which sanctioned market allocation in much of the economy but constrained it within limits set through a political process. The successor neoliberal regime, particularly associated with Reagan and Thatcher, moved back towards the norms of laissez-faire embraced by classical liberalism, and hence prescribed a roll-back of state ‘intervention’ and an expansion of market allocation in economic life. But it gave more emphasis than classical liberalism to the idea that competition is not the ‘natural’ state of affairs, and that the market can produce sub-optimal results wherever producers have monopoly power (as in Adam Smith’s observation that ‘people of the same trade seldom meet together [without concocting] a conspiracy against the public’).
Neoliberalism accordingly sanctioned state intervention not only to supply a range of public goods that could not be provided through competitive profit-seeking (as did classical liberalism), but also to frame and enforce rules of competition, overriding private interests in order to do so; hence the ‘neo’. Its principal yardstick for judging business success was shareholder value, and its central notion of the national economic interest was efficiency as determined by competition in an economy fully open to world markets; there should be no ‘artificial’ barriers between national and world market prices, such as tariffs or subsidies to particular industries. Of course, at the level of policy, many tactical, pragmatic modifications were made to these principles, in order to subsidize corporations, channel more wealth to the rich, and stabilize the economy and society with covertly Keynesian policies. [2] But at the level of norms, the difference was clear.
In the realm of finance, neoliberal prescriptions were justified by the ‘efficient markets hypothesis’, which claimed that market prices convey all relevant information and that markets clear continuously—rendering sustained disequilibria, such as bubbles, unlikely; and making policy action to stop them inadvisable, since this would constitute ‘financial repression’. Milton Friedman and the Chicago School gave their name to this theory; but as Paul Samuelson said, ‘Chicago is not a place, it is a state of mind’, and it came to prevail in finance ministries, central banks and university economics departments around the non-communist world.
The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the us’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). [3] The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.
Some caution is in order. There is a recurrent cycle of debate in the wake of financial crises, as an initial outpouring of radical proposals gives way to incremental muddling through, followed by resumption of normal business. Ten years ago the East Asian, Russian and Brazilian crises of 1997–98 struck panic in the High Command of world finance, and were followed by vigorous discussion around a ‘new international financial architecture’. But once it became clear that the Atlantic heartland would not be affected, the radical talk quickly subsided. The upshot was a raft of new or reinvigorated public and private international bodies tasked with formulating standards of good practice in corporate governance, bank supervision, financial accounting, data dissemination and the like. [4] Such efforts diverted attention from the issue of re-regulation, and the financial sector in the West was able to ensure that governmental initiatives did not include new constraints, such as limits on leverage or on new financial products. There was no change of norms regarding the desirability of lightly regulated finance.
Systemic tremors
When the Bank for International Settlements (bis) said in its June 2007 Annual Report that ‘years of loose monetary policy have fuelled a giant global credit bubble, leaving us vulnerable to another 1930s slump’, its analysis was largely ignored by firms and regulators, notwithstanding the bis’s reputation for caution. As recently as May 2008 some commentators were still arguing that the crisis was a blip, analogous to a muscle strain in a champion athlete which could be healed with some rest and physiotherapy—as opposed to a heart attack in a 60-a-day smoker whose cure would require surgery and major changes in lifestyle.
The events of September 2008, however, make it hard to avoid the conclusion that we have entered a new phase. Financial market conditions in much of the oecd have sunk to their lowest levels since the banking shut-down of 1932, which was the single most powerful factor in making the 1929 downturn and stock market crash become the Great Depression. (Some 11,000 national and state banks failed in the us between 1929 and 1933.) One bond trader described the current situation as ‘the financial equivalent of the Reign of Terror during the French Revolution’. [5] In these circumstances, the efficient markets hypothesis and the prescriptions derived from it have been thoroughly discredited.
In particular, the second fortnight of September of this year saw not one but three ‘game-changing’ convulsions in the world’s most sophisticated financial system. These do not include the nationalization of Freddie Mac and Fannie Mae: giant though they are, these ‘quasi-government institutions’ had an established claim to a public safety net. Rather, the first upheaval was the run on two more of the big five Wall Street-based broker-dealers or investment banks, following the earlier run on Bear Stearns—in each case followed by the banks’ demise. Only Morgan Stanley and Goldman Sachs remain standing—for the time being—and they have switched their legal status to that of bank holding companies, which means they will be subject to closer regulation than before. The bankruptcy of Lehman Brothers in mid-September trapped the funds of mega-investors, ratcheting up the panic throughout financial markets and shutting down credit flows even for normal business. It could have especially far-reaching consequences, since Lehman had a huge volume of derivative business, and there has never been a default of a counterparty to derivative contracts on anything like this scale.
The loss of three of the five giants fundamentally changes the politics of international finance, because these investment banks were immensely powerful actors in the political process—not only in the us but also in the eu. From their London bases, the us investment banks had a shaping influence on the content of eu financial legislation in Brussels. The upside of their disappearance, then, is that it weakens one major obstacle to financial re-regulation.
The second September game-changer was the us Treasury’s bail-out of aig for a promised $85 bn. aig was not just America’s but the world’s biggest insurer. Since it stood outside the banking system, its bail-out broke through the firewall separating financial intermediaries from the ‘real’ economy. The contagion is now likely to spread to other insurers, and to thousands of highly leveraged hedge funds, as lock-in periods expire at the end of the next two quarters and investors are able to withdraw their funds. The third great convulsion outdid even the second: in the most dramatic government rescue operation in history, the us Treasury announced a plan to buy up to $700 bn of toxic securities from troubled banks, at a price well above current market value. Remarkably, it was improvised almost on the spot—Secretary Paulson’s original proposal ran to only three typed pages—indicating that the Treasury had been convinced that it could muddle through without a contingency plan. As proposed, it would have given Wall Street almost unrestrained access to public revenues at little cost. At the end of September the bail-out was rejected by the House of Representatives, and subsequently modified by the Senate, both parts of Congress alarmed at the public’s fury in an election year. The version approved by Congress in early October promises to make a larger share of any subsequent profits into public revenues, but nonetheless uses tax revenues to socialize the losses of the finance sector—an unprecedented hand-out to those responsible for the crisis in the first place.
Repercussions
Falls in the us and uk property markets, meanwhile, continue to drive the downward spiral. The us futures market is estimating a 33 per cent drop in us prices from peak to trough (based on the Case-Shiller Home Price Index), with the trough still a year away. The uk, which since 2000 has had the second biggest property bubble after the Japanese land bubble of the 1980s, may experience a 50 per cent fall from peak to trough; but even this would leave house prices higher than in 1997 as a multiple of income. As the credit contraction spreads across sectors and across regions, the damage to the real economy is growing, as measured by rising unemployment—in the us, the jobless total has risen by 2.2 million in the last 12 months—and slowing consumption; though it is surprising how gradually this has taken place since mid-2007. As of early October 2008, the crisis has swept into many continental European banks, which had previously prided themselves on having escaped the turmoil.
So far, however, the crisis has remained centred on the Atlantic economy, and there has as yet been little blow-back from East Asia. Indeed, it is notable that extreme illiquidity in Western financial markets co-exists with overflowing savings and foreign exchange reserves in East Asia and the petro-economies of Russia and the Gulf. Yet another feature of the current crisis that makes it unprecedented is the fact that the West is pinning its hopes for recovery on fast growth in the developing world, especially East Asia—and that Western banks seeking to avoid bankruptcy are increasingly looking for capital injections from these countries, and from the sovereign wealth funds of such states as China, Dubai and Singapore, among others.
Japan, the world’s second largest economy, looks thus far to be relatively unscathed. There are few signs of a credit crunch, although growth stands almost at zero. The short explanation for this is that Japanese banks remained very cautious after the bitter experience of the 1990s, when they were obliged to clean up after the 1980s bubble. They have been criticized at home and abroad for holding too much cash and too little debt; a recent example from the International Herald Tribune makes plain the norms that have dominated Anglo-American and therefore ‘global’ economic policy over the past three decades:
The country has a $14 trillion pile of household savings . . . This blessing has also been a curse to investors . . . Japan’s wealth shields it from pressures to meet global standards of economic growth or corporate profitability. This is what allowed the country to accept near-zero growth rates in the 1990s and what allows the survival of Japanese corporate practices like valuing employees and clients over shareholders. [6]
China, however, is another story. Since 1980 it has experienced several booms followed by sharp slumps; despite the phenomenal improvement in its economic performance in the last decade, a further slump is quite possible. One potential source of trouble is the prc’s accumulation of vast quantities of us asset-backed securities whose value has fallen precipitously; in June 2007, us Treasury data estimated the value of these to be $217 bn. Another is the high ratio of non-performing loans in Chinese banking—more than 6 per cent in the last quarter of 2007, according to official data. A third is high inflation, especially in food prices. Other East and Southeast Asian investors are also thought to be holding large quantities of toxic securities. This suggests that there could sooner or later be a blow-back from East Asia into the us and Europe, generating another downward twist.
Causes of the crunch
If the wars in Iraq, Kosovo and Afghanistan were one expression of American post-Cold War triumphalism, globalized finance, launched during the Clinton Administration, was another. The mainstream press boasted that the us financial system had broken through the sound barrier and was now operating in a new dimension, as it undertook more and more dazzling gambles. They were right to emphasize the novelty of the way in which us finance operated in the 2000s, and the sense that it had no limits. The deeper causes, however, lay in economic developments. In much of the Western world the rate of profit of non-financial corporations fell steeply between 1950–73 and 2000–06—in the us, by roughly a quarter. In response, firms ‘invested’ increasingly in financial speculation, and the us government helped offset the resulting shortfall of non-residential private investment by boosting military spending (the Pentagon’s annual budget happens to be around the same as the figure put on the Treasury’s recent rescue plan).
In addition, foreign currency markets have since 2000 persistently driven exchange rates in the wrong direction, causing many economies running large external deficits to experience currency appreciation, and others running surpluses to experience depreciation or no change. External deficits and surpluses have grown, increasing the fragility of the global economy. However, commentators who insist that the present turmoil is simply the latest in a long line of crises driven by bubble dynamics miss the point that this time, the asset bubble was propagated across the world through securitization technology and the ‘originate and distribute’ model of banking, which only came to fruition in the 2000s. The model encouraged high leverage, complex financial instruments and opaque markets, all of which put this crisis in a league of its own.
Too much stress has been laid specifically on the housing bubble, as though it was a necessary and sufficient condition of the crisis. It was only one part of a much wider run-up of debt. Table 1, overleaf, shows the ratio of debt to gdp for the us economy as a whole, and for the two most indebted sectors—households and finance—for 1980 and 2007. The overall ratio more than doubled, and that for the financial sector increased more than fivefold.
The toxic combination of debt, asset bubble and securitization technology was itself enabled by lax regulation. The locus of the blow-up was not unregulated hedge funds, but supposedly regulated banks. Until recently it was acceptable in the eyes of the authorities for investment banks to operate with a debt to equity ratio of 30–35:1. It is no exaggeration to say that the crisis stems from the biggest regulatory failure in modern history. Many politicians and commentators are stressing that ‘we are all to blame’—the international economy, bankers, investors, ratings agencies, consumers. But this simply diverts attention from those whose job it was to regulate: the regulators and the political authorities who sanctioned them.
The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall.
The striking thing about the uk Financial Services Authority, set up with great fanfare by Brown in 1997, at the same time as he granted the Bank of England semi-autonomy in monetary policy, is that it has sweeping jurisdiction over the British financial sector—in contrast to the us system of multiple and fragmented regulators. Yet it regulates diffidently, and was evidently intended as little more than window-dressing. Howard Davies, the fsa’s first chairman, described its guiding principle with striking candour: ‘The philosophy from when I set it up has been to say, “Consenting adults in private? That’s their problem, really.”’ [7] Hence the fsa, in its covert and successful bid to attract us companies to London, allowed banks and insurance companies operating from the City to do so with much less capital than similar organizations in New York. Its commitment to light and limited regulation meant that to deal with British financial markets one-third the size of those in the us, it had eleven times fewer enforcement agents than the Securities and Exchange Commission (sec)—98 as compared to 1,111.
It is ironic that the crisis may end up saving Brown from having to resign as prime minister. Yet it is now clear that his aversion to financial regulation, and his lack of concern about the housing bubble—which in the period since Labour came to power has made the uk’s economic performance look much better than it would otherwise have done—are deeply implicated in the build-up to the crisis. For a decade, the combined tails of the housing market and financial sector have wagged the dog of the British economy. As in the us, consumption grew much faster than gdp, financed by rising debt, thanks to booming house prices. A grateful electorate returned the Labour government to office twice in a row.
Governmental responses
The downward spiral of credit contraction is being driven by a pervasive collapse of trust in the entire structure of financial intermediation that underpins capitalist economies. With debt levels running high and the economic climate worsening, many enterprises in the real economy must be close to bankruptcy; hence lenders and equity buyers are staying out of the market. Governments have therefore moved to stabilize credit markets by taking steps to encourage buyers to re-enter the market for securities—most notably the us Treasury, with its $700 bn bail-out scheme. Several European states have moved to steady the banking sector, with Ireland, Greece, Germany, Austria and Denmark guaranteeing all savings deposits in early October 2008. Competition rules have been set aside, as governments foster mega-mergers. In the uk, the recent merger of hbos and Lloyds tsb creates a bank with a 30 per cent share of the retail market.
The sheer monopoly power of such new financial conglomerates is likely to prompt a stronger regulatory response. Another key area to watch in terms of gauging the robustness of governmental responses is the market for Over the Counter (otc) derivative contracts—which Warren Buffet famously described in 2003 as ‘financial weapons of mass destruction’. Buffet went on to say that, while the Federal Reserve system was created in part to prevent financial contagion, ‘there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives’. In the event that more regulation of the otc market is implemented—even in the minimal form of requiring the use of a standard contract format and registration of the details of each contract with a regulatory body—Brooksley Born will have some satisfaction. She was head of the Chicago Futures Trading Commission in the late 1990s, and proposed in a discussion paper that the otc market should come under some form of regulation. Alan Greenspan, sec Chairman Arthur Levitt and Treasury Secretary Robert Rubin were so angry at her for even raising such an idea that they sought Clinton’s permission to have her fired; in January 1999 she duly resigned for ‘family reasons’.
Beyond such immediate, fire-fighting responses, the crisis has also drawn attention to the matter of the system’s overall stability—and specifically to the impact of international financial standards on national systems. A furious debate has been under way in recent years about international accounting standards. Both the leading sets used by listed companies around the world—the us Generally Accepted Accounting Principles and the International Financial Reporting Standards (also known as ias)—require listed companies to ‘mark to market’; that is, frequently to revalue their assets at current market prices or, if the assets are illiquid and have no market price, to revalue them according to the cost of guaranteeing them. Defenders of this method—principally investors—tendentiously call it the ‘fair value’ standard (who could oppose ‘fair value’?), arguing that its adoption is crucial to maintaining investors’ confidence in firms’ published accounts. [8]
Critics, including the International Institute of Finance—the main lobbying group for bankers—counter that it amplifies booms and busts. During downswings ‘fair value’ accounting obliges banks to record a drop in asset value which may be unjustified by economic ‘fundamentals’. To maintain their solvency ratios they are then obliged to raise new capital at high cost or reduce lending. Upswings, meanwhile, permit banks to boost their balance sheets beyond levels justified by ‘fundamentals’. But the alternative methods of ‘mark to historical prices’ or ‘mark to model’, in which each firm uses its own model to estimate shadow prices, are in turn open to attack. Warren Buffet observed that ‘mark to model’ tends to degenerate into ‘mark to myth’, while Goldman Sachs in June 2008 resigned its membership of the iif in protest at the prospect of a move to what it called Alice in Wonderland accounting.
Critics of ‘mark to market’ tend to conflate the important distinction between accounting standards and prudential standards. The former are concerned with the information provided to shareholders and others about the ‘integrity’ of the market; their function is to ensure continuous and accurate information on the situation of companies as the basis for investment decisions. Prudential standards, on the other hand, focus on financial stability, and on preventing financial actors from behaving in ways that put stability at risk. Maintaining this distinction, and overhauling some prudential standards, is important in the current context.
Credit and credibility
One type of prudential standard ripe for revision concerns banks’ capital adequacy. The Basel II standard of capital adequacy, which came into force at the start of 2007 after some nine years of negotiation, marked a shift from the external regulation of Basel I to self-regulation—making it an invitation to careless behaviour and ‘moral hazard’ at a time when big banks are more confident than ever that they will be bailed out by the state. Basel II requires banks to use agencies’ ratings and their own internal risk-assessment models—both of which have been shown to be pro-cyclical and to have failed spectacularly in the run-up to the present crisis—while raising capital standards during periods of illiquidity, precisely when banks are less able to meet them. Moreover, experience of Basel I and simulation of the effects of Basel II suggest that both sets of rules tip capital flows from developed-country banks to the developing world in favour of short-term bank credit, the most dangerous kind. [9] Basel II also raises the cost of finance for banks in the global South relative to those in the developed world, cementing the competitive advantage of the latter. Incremental revision of Basel II will not address any of these issues; for that, wholesale renegotiation will be required.
Among the many victims of the crisis, then, is the dominant ‘global’ model of financial architecture of the last two decades, the credibility of which has been seriously damaged. All three of its main pillars malfunctioned in the run-up to the current crisis. Firstly, a financial services regulator is supposed to protect bank depositors and consumers from unsound behaviour by individual firms, such as holding inadequate reserves; as we have seen, however, regulation was lax in the extreme. Second, financial markets are meant independently to allocate investment capital and consumer credit between individuals, firms and states, with little influence from government; but the opacity created by leveraging and complex financial engineering resulted in market meltdown and eventual state rescue.
The third pillar is the maintenance of monetary stability—defined as keeping a tight lid on inflation—by the central bank. Focusing on the retail price index, central banks opted to keep interest rates very low and permit fast credit growth, lulled by low price inflation due to cheap imports from China. The rapid growth of credit blew out asset bubbles, especially in housing—which many central banks ignored, since their mandate was confined to consumer prices. Indeed, they and the politicians behind them applauded the housing boom because it propelled sharp increases in gdp. The new regime that emerges from the ongoing crisis, then, is likely to include attempts to revise the role of the third pillar by expanding the mandate of central banks, and ensuring they give more weight to asset prices. Since the interest rate is a very blunt instrument, central bankers and regulators will have to rely on an expanded set of prudential measures. Examples would include a requirement for new financial products to obtain regulatory approval, to ensure that their risk characteristics can be readily determined by a third party; or a demand that any organization that can expect a public safety net—and especially public deposit insurance—should submit to controls of its loan portfolio, so as to reduce credit to ‘overheating’ sectors. [10]
Demise of the consensus?
Neoliberal economics has powerful antibodies against evidence contrary to its way of seeing things. However, the current crisis may be severe enough to awaken economists from the ‘deep slumber of a decided opinion’, and render them more receptive to proof that the post-Cold War globalization consensus has strikingly weak empirical foundations. According to the conventional view, in the decades after 1945, governments routinely ‘intervened’ in the economy, especially in developing countries where import-substituting industrialization was the norm. While the developed world liberalized, the global South kept to isi and, consequently, its relative economic performance lagged. But as of around 1980, under encouragement from the World Bank, imf and the American and British governments, developing countries increasingly adopted the prescriptions of the globalization consensus and switched to a strategy of market-friendly, export-led growth and supply-side development. As a result, their performance improved relative not only to the past but also to that of the developed countries; they finally began to catch up. This empirical evidence in turn validated World Bank and imf pressure on their borrowers to adopt neoliberal policies.
The trouble with this story is that it is largely wrong. Figure 1 shows the average income of a number of regions relative to that of the North, expressed in purchasing power parity dollars (ppp$), from 1950 to 2001. Latin America and Africa display a relative decline both before and after 1980; Eastern Europe, not shown, tracks the Latin America line. China, at the bottom of the graph for most of the period, starts to rise in the 1980s and continues thereafter, reaching the average for the South by 2001; the Asia line rises a little, too, after a lag—but this also includes China, which accounts for a large part of its ascent.
Figure 2, opposite, shows the average income of the developing world, excluding the ‘transitional economies’ of the former Soviet bloc, as a proportion of that of the North, expressed in market exchange rates. The top line represents the whole of the global South, the bottom line the global South excluding China. In both cases, the trend from 1960 to 2008 is very different from that postulated by the globalization narrative. The ratio was higher in the period before 1980, fell steeply during the 1980s, flattened out at a low level during the 1990s, and had a small uptick after 2004 because of the commodity boom induced by rapid growth in the prc. With incomes expressed in terms of ppp, the trend line is consistent with the globalization narrative, turning upwards in the early 1980s and continuing to ascend thereafter; but exclude China and the trend is much the same as in Figure 2. [11]
The notion that globalization generates catch-up growth, then, rests principally on the rise of China. Yet the policies Beijing has pursued are far from identical to those endorsed by the Washington Consensus; it has followed the precepts of Friedrich List and of American policy-makers of the nineteenth century, during the us’s catch-up growth, more than those of Adam Smith or latter-day neoliberals. The state has been an integral promoter of development, and has adopted targeted protection measures as part of a wider strategy for nurturing new industries and technologies; it is now investing heavily in information systems to help Chinese firms engineer their way around Western patents.
The American Economic Association carried out surveys of its members’ opinions in 1980, 1990 and 2000. [12] The results indicate a broad consensus on propositions about the desirable effects of openness and the harmful effects of price controls. For example, in all three surveys the proposition that ‘tariffs and import controls lower economic welfare’ elicited very high agreement; in 1980, 79 per cent of us economists said they ‘agree’ with the statement, as distinct from ‘agree with qualifications’ or ‘disagree’. (Economists in four continental European countries were also surveyed in 1980; only 27 per cent of French economists said they agreed with the same statement.) It seems a safe bet that the 2010 survey will report significantly less agreement about the desirability of free trade, free capital movements and other forms of economic openness—providing concrete evidence of a weakening of the globalization consensus among us economists, and further support for the conjecture that we have entered a new regime.
Rethinking the model
In times of crisis, arguments that had previously been on the margins can gain greater currency. If the disappearance of three out of five big investment banks indicates the seriousness of the present turmoil, it also provides an opportunity to broaden the range of possibilities for an overhaul of the way global finance operates; the fall in pension funds and declining house prices should also enlarge the constituency for major reform. Scholars today face the challenge of rethinking some of the basic intellectual models that have legitimized policy over the past three decades. The fallout from complex, opaque financial products may persuade many of the benefits of a substantially smaller financial sector relative to the real one, and perhaps of a ‘mixed economy’ in finance, where some firms would combine public and private purposes—operating more like utilities than profit maximizers.
But more fundamentally, the globalization model itself needs to be rethought. It over-emphasized capital accumulation or the supply side of the economy, to the detriment of the demand side (since the stress on export-led growth implied that demand was unlimited). [13] The failure of catch-up growth, seen in Figures 1 and 2, stems in part from neoliberalism’s lack of attention to domestic demand, reflecting the dominance of neoclassical economics and the marginalization of Keynesian approaches. Developing domestic and regional demand would involve greater efforts towards achieving equality in the distribution of income—and hence a larger role for labour standards, trade unions, the minimum wage and systems of social protection. It would also necessitate strategic management of trade, so as to curb the race-to-the-bottom effects of export-led growth, and foster domestic industry and services that would provide better livelihoods and incomes for the middle and working classes. Controls on cross-border flows of capital, so as to curb speculative surges, would be another key instrument of a demand-led development process, since they would give governments greater autonomy with regard to the exchange rate and in setting interest rates.
The recent strengthening of regional integration processes, meanwhile, should direct attention away from global standards and arrangements which, because of their maximal scope, are necessarily coarse-grained at best. Regional trade agreements between developing countries have distinct advantages over multilateral trade deals, whose terms often serve to break open economies of the global South while preserving intact protections for industry and agriculture in the North. Regional currencies—such as the Asian Currency Unit being discussed by East Asian states, based on a weighted average of key local currencies—could act as a benchmark independent of the us dollar, reducing vulnerability to market turbulence on Wall Street. [14]
Global economic regimes need above all to be rethought to allow a diversity of rules and standards, instead of imposing ever more uniformity. Rather than seeking, in Martin Wolf’s terms, to make the whole world attain the degree of economic integration found within the federal structure of the us, such that nation-states would have no more influence over cross-border flows than us states have over domestic transactions, [15] we might draw inspiration from an analogy with ‘middleware’. Designed to enable different families of software to communicate with each other, middleware offers large organizations an alternative to making one program span their entire structure; it allows more scope for a decentralized choice of programs. If the second leg of the present ‘double movement’ turns out to be a period from which consensus is largely absent, it may also provide space for a wider array of standards and institutions—economic and financial alternatives to the system-wide prescriptions of neoliberalism. This may give the new regime that emerges from the current upheavals greater stability than its predecessor. Whether it provides the basis for a more equitable world, however, will remain an open question—and an urgent challenge—for some time to come.
7 October 2008
2008. 10. 20.
[Economist] Logistics in Africa
Logistics in Africa
Network effects
Oct 16th 2008 | MOMBASA
From The Economist print edition
Connectivity and commitment pay dividends in African transport
ASIDE from a few niche industries such as cut flowers, which are air-freighted from Kenya and Ethiopia to auctions in the Netherlands, African trade has not changed much since the end of the colonial era. Unprocessed raw materials go out; finished goods come in. The trade imbalance is vividly illustrated by the ships sent from Asia to pick up empty containers left at African ports. Within Africa, moreover, it is difficult and costly to move goods. The continent has only a few broken-down railways. It has nothing resembling a transcontinental motorway. Even the British colonial dream of a road connecting Cape Town with Cairo failed.
African transportation has't changed since the end of the colonial era.
Today, getting a container to the heart of Africa—from Douala in Cameroon to Bangassou in the Central African Republic, say—still means a wait of up to three weeks at the port on arrival; roadblocks, bribes, pot-holes and mud-drifts on the road along the way; malarial fevers, prostitutes and monkey-meat stews in the lorry cabin; hyenas and soldiers on the road at night. The costs of fuel and repairs make even the few arterial routes (beyond southern Africa) uneconomic. A study by America’s trade department found that it cost more to ship a ton of wheat from Mombasa in Kenya to Kampala in Uganda than it did to ship it from Chicago to Mombasa.
But several companies are trying to make the best of Africa’s creaking infrastructure to construct transcontinental logistics networks. Among them are DHL, Maersk, Dubai World and Chinese companies supplying oil and mining projects in Angola and the Democratic Republic of Congo (DRC). The clear leader so far is Bolloré Africa Logistics, a division of Bolloré, a French industrial conglomerate.
Bolloré’s African adventure started in the 1980s when Vincent Bolloré, the omnivorous billionaire who heads the family firm, began to buy up ancient transport infrastructure in west Africa. Growth since has been rapid and mostly profitable. As a port operator, stevedore, warehouser and freight forwarder, Bolloré handles 80% of west Africa’s exports (excluding oil) and 25% of east Africa’s—in short, nearly all of Africa’s cotton and cocoa, as well as much of its coffee, rubber, and timber.
With offices in 42 African countries and 20,000 of his 31,000 employees based in Africa, Mr Bolloré is bullish on the continent’s prospects. Bolloré Africa Logistics accounts for $2 billion of the group’s $10 billion annual revenues. Its head, Dominique Lafont, predicts 12-17% annual growth for the division for the next five years. He believes better logistics are vital to reduce poverty in Africa. A new warehouse for perishable goods, or a new garage for repairing overland lorries, he reckons, create more lasting benefits to Africans than most aid projects do.
Bolloré’s aim is to exploit the massive unrealised potential for trade between African countries by being the first to link the economies of the Francophone and English-speaking parts of Africa. It wants to do this by establishing a 26,000km (16,000 mile) pan-African network of “vital corridors”, making use of whatever infrastructure is available, with long sections of transit by barge down the Niger, Congo, and Nile rivers deep into the interior.
Ports and “dry ports” (depots with customs-bonded warehouses) are probably the easiest part of Africa’s logistics network to fix. Bolloré was among 100 firms, “15 of them serious”, says Mr Lafont, to tender for the right to operate a new port outside Lagos in Nigeria. It already runs several other west African ports, hopes to be reconsidered for the Dar es Salaam port in Tanzania, and wants to compete with Dubai World’s Djibouti port, which has a monopoly in the Horn of Africa, by developing the port of Berbera in former British Somaliland. Bolloré’s biggest bet was on Abidjan port in Côte d’Ivoire, where it invested heavily despite a prolonged civil war, reducing the handling time of containers in the port from eight days to two.
Ivorian officials say Bolloré’s investment, which allowed cocoa exports to continue during the fighting, helped keep the country from collapse. For its part, Bolloré brazenly uses Abidjan as part of its sales pitch of Afro-optimism and to illustrate its policy of never pulling out of any country. The firm claims to have continued operations through the Rwanda genocide, wars in Sudan and Congo, and during this year’s election crisis in Kenya.
As African economies grow and demand for consumer goods increases, Bolloré expects to make more of its money from supply-chain contracts. In Kenya, for example, it has a contract with British American Tobacco to transport tobacco from farm to factory and then as finished cigarettes to smokers across east Africa. Bolloré expects to lose money on serving the remote ends of its “vital corridors”, but believes maintaining the network will put it in a better position to bid for supplying lucrative projects such as iron ore mines in DRC, oil fields in Sudan, gold fields in Tanzania and gas pipelines in Nigeria.
The biggest impact of improved logistics in Africa may be on good governance. Prompt payment of customs dues by logistics companies on behalf of their clients and paperless transit have increased tax revenues and reduced government corruption. It is harder for a customs official to hold out for a bribe when the system is computerised and tracked by a logistics company’s bar code—although not impossible: in grubbier ports, officials sometimes hold cargo to ransom by refusing to press the return key on the keyboard.
But if the logisticians are to make headway, African governments must also do their part. They need to reduce banditry, keep roads and bridges in better shape and regulate Africa’s informal trucking business, run by cowboy operators who overload old lorries and pay bribes instead of taxes. Above all, Africa needs to smooth passage along its roads. Landlocked Rwanda recently identified 47 checkpoints and weighbridges between Mombasa and Kigali. Getting rid of roadblocks would cut the cost of shipments by 20%—and clear the way for broader economic growth.
[FT]Sweden launches financial stability package
스웨덴도 금융안정화 대책을 내놓았다. 규모는 2050억 달러다. 스웨덴은 자국통화를 사용하기 때문에 금융위기에서 벗어나 있었다. 하지만 스웨덴 은행보다 발틱삼국이 문제다. 리투아니아, 라트비아, 에스토니아는 위기를 겪고 있다. 스웨덴의 지원이 이들을 살릴 수 있을지 주목해야 한다.
Sweden launches financial stability package
By David Ibison
Published: October 20 2008 09:17 | Last updated: October 20 2008 09:17
Sweden on Monday became the latest European country to take action to stabilise its financial system with the creation of a $205bn programme to boost liquidity in the system and take direct stakes in its banks if needed.
Sweden is a member of the EU but not a Eurozone member, and while its banks are stable and have experienced no liquidity or capital problems so far, there are concerns they may not escape the effects of the global financial crisis unscathed.
In particular, there are worries that a sharp correction in the economies of the three Baltic states of Latvia, Estonia and Lithuania could undermine Sweden’s banks, which control two thirds of total lending in the former Soviet states.
The new financial assistance package involves a $205bn liquidity boost and a separate SEK15bn fund that can be used to takes stakes in any bank that needs a capital boost.
Anders Borg, finance minister, said Monday that the country would also examine its deposit guarantee programme, having already raised the guarantee on bank deposits to SEK500,000 earlier this month.
Mats Odell, minister for financial markets, said Monday that any financial institution that receives a capital injection must sign agreements that limit salaries and bonus payments to managers.
The Swedish government also agreed to guarantee deposits at foreign banks with clients in Sweden if their own governments cannot do so and widened the types of accounts covered.
Sweden has gone out of its way to quell fears the country’s largest banks could be dangerously exposed to an Iceland-like crisis in the Baltics.
The Financial Supervisory Agency said last week in a report that the banks had sufficient capital to weather a “serious recession” in Lithuania, Latvia and Estonia, even if there was a simultaneous recession in Sweden and the rest of the world.
Sweden’s banks dominate the Baltic banking market. Swedbank is the largest bank in Estonia and Latvia, while SEB is the market leader in Lithuania. Together they control two-thirds of total lending across the three former Soviet states.
Significant economic imbalances in the tiny countries, such as very large current account deficits, have prompted concerns that they could suffer a sharp economic downturn after years of high growth.
All three nations admit their economies had overheated and face a period of economic slowdown. Latvia and Estonia are already in recession, while Lithuanian growth has slowed markedly, but all three bristle at the suggestion that they face an Iceland-style crisis.
They point out that their banking systems are controlled by Swedish banks, meaning the chances of an Iceland-style collapse are slim. All three nations also support their currencies with currency boards or pegs to the euro, providing a degree of exchange rate stability.
But as fears of an alleged Baltic collapse have spread, mainly from unsourced commentary and speculation, the share prices of Swedbank and SEB have almost halved.
Investors will get a closer look at the state of Sweden’s banks’ Baltic operations when they release quarterly results this week.
Although non-performing loans have increased, they are still well under internationally accepted limits. Swedbank, for example, is forecasting losses of just 1.2 per cent of its Baltic loans next year.
The three Baltic states accounted for just 20 per cent of SEB’s operating profit between January and June 2008, with Sweden contributing 48 per cent and the remainder split between other Nordic states and Germany.
Copyright The Financial Times Limited 2008
2008. 10. 12.
[FT]Crisis marks out a new geopolitical order
Crisis marks out a new geopolitical order
By Philip Stephens
Published: October 9 2008 19:32 | Last updated: October 9 2008 19:32
Blame greedy bankers. Blame Alan Greenspan’s careless stewardship of the US Federal Reserve. Blame feckless homeowners who took out loans they could never expect to repay. Blame politicians and regulators everywhere for closing their eyes to the approaching tempest.
All of the above are culpable. I am sure there are even more villains lurking out there. Sometimes, though, it is worth looking through the other end of the telescope. The wreckage of the financial system holds up a mirror to the changing geopolitical balance. It offers advice, and a warning, as to what the west should make of the emerging global order.
Until quite recently, the talk was about the humbling of America’s laisser faire capitalism. The US government’s $700bn bail-out was the price to be paid for past hubris. For reasons that still elude me, one or two European politicians seemed to delight in the troubles of an ally that still guarantees their security.
Schadenfreude comes before a fall. Solid, conservative Germany has been among the European nations forced to shore up its banks. Angela Merkel, the chancellor, has been driven to assure German voters publicly that their savings are safe.
Belgium and the Netherlands have rescued Fortis. Ireland and Greece have issued blanket guarantees to bank depositors. Others have done something similar. Most dramatically, Gordon Brown’s British government has part-nationalised all of its leading banks in a desperate bid to crack the ice of the credit freeze.
If the toxic mortgage securities and opaque credit swaps that infected the world’s financial system came with a made-in-the-US stamp, European banks were eager buyers. For the humbling of America, we should substitute the humbling of the west.
Asia, as we have seen in the markets this week, is not immune from the shocks and stresses. Japan, which has only quite recently emerged from the long twilight of its 1990s banking collapse, has now been hit anew by the global storm. China felt compelled this week to follow western central banks in cutting interest rates. So did a host of smaller Asian countries. Recession in the US and Europe will slow the growth of Asia’s rising economies.
Standing back, though, two things mark out this crisis as unique. First, is its sheer ferocity. I am not sure how useful it is to make comparisons with the 1930s. History never travels in a straight line. What is evident is that governments and central banks have had no previous experience of coping with shocks and stresses of the intensity and ubiquity we have seen during the past year.
The second difference is one of geography. For the first time, the epicentre has been in the west. Viewed from Washington, London or Paris, financial crises used to be things that happened to someone else – to Latin America, to Asia, to Russia.
The shock waves would sometimes lap at western shores, usually in the form of demands that the rich nations rescue their own imprudent banks. But these crises drew a line between north and south, between the industrialised and developing world. Emerging nations got into a mess; the west told them sternly what they must do to get out of it.
The instructions came in the form of the aptly-named Washington consensus: the painful prescriptions, including market liberalisation and fiscal consolidation, imposed as the price of financial support from the International Monetary Fund.
This time the crisis started on Wall Street, triggered by the steep decline in US house prices. The emerging nations have been the victims rather than the culprit. And the reason for this reversal of roles? They had supped enough of the west’s medicine.
A decade ago, after the crisis of 1997-98 wrought devastation on some of its most vibrant economies, Asia said never again. There would be no more going cap in hand when the going got rough. To avoid the IMF’s ruinous rules, governments would build their own defences against adversity by accumulating reserves of foreign currency.
Those reserves – more than $4,000bn-worth at the present count – financed credit in the US and Europe. There were other sources of liquidity, of course, notably the Fed and the reserves accumulated by energy producers. It also took financial chicanery to turn reckless mortgage lending in to triple A rated securities. But as a Chinese official told my FT colleague David Pilling the other day: “America drowned itself in Asian liquidity.”
Owning up to the geopolitical implications will be as painful for the rich nations as paying the domestic price for the profligacy. The erosion of the west’s moral authority that began with the Iraq war has been greatly accelerated. The west’s debtors cannot any longer expect their creditors to listen to their lectures. Here lies the broader lesson. The shift eastwards in global economic power has become a commonplace of political discourse. Almost everyone in the west now speaks with awe of the pace of China’s rise, of India’s emergence as a geopolitical player, of the growing roles in international relations of Brazil and South Africa.
Yet the rich nations have yet to face up properly to the implications. They can imagine sharing power, but they assume the bargain will be struck on their terms: that the emerging nations will be absorbed – at a pace, mind you, of the west’s choosing – into familiar international forums and institutions.
When American and European diplomats talk about the rising powers becoming responsible stakeholders in the global system, what they really mean is that China, India and the rest must not be allowed to challenge existing standards and norms.
This is the frame of mind that sees the Benelux countries still holding a bigger share than China of the votes at the IMF; and the Group of Seven leading industrialised nations presuming this weekend that it remains the right forum to redesign the global financial system.
I have no inhibitions about promoting the values of the west – of preaching the virtues of the rule of law, pluralist politics and fundamental human rights. Nor of asserting that, for all the financial storms, a liberal market system is the worst option except for all the others. The case for global rules – that open markets need multilateral governance – could not have been made more forcefully than by the present crisis.
Yet the big lesson is that the west can no longer assume the global order will be remade in its own image. For more than two centuries, the US and Europe have exercised an effortless economic, political and cultural hegemony. That era is ending.
More columns atwww.ft.com.philipstephens
philip.stephens@ft.com
Copyright The Financial Times Limited 2008
르네상스 1호
국내 사모투자펀드(PEF)의 상장 전 기업(Pre-IPO) 투자가 서서히 결실을 맺고 있다. 비상장기업에 투자, 상장을 통해 투자금을 회수하기 때문에 수익률도 높은 편이다.
11일 증권업계에 따르면 대우증권(14,600원 1,000 -6.4%)과 웅진캐피탈이 공동으로 설립한 사모투자펀드(PEF) '르네상스 제1호 PEF'가 투자한 SPP조선이 오는 6월께 증권거래소에 상장할 예정이다.
대우증권 관계자는 "예상보다 실적이 좋아 SPP조선의 IPO 시기를 앞당기기로 했다"며 "오는 6월, 늦어도 7월쯤에는 증권거래소에 상장될 수 있을 것"이라고 말했다.
미래에셋증권과 대우증권, 굿모닝신한증권 등 3곳이 IPO를 위한 공동 주관사를 맡고 있다. 업계에선 SPP조선이 이번 IPO를 통해 2000억~3000억원 규모의 자금을 조달할 것으로 전망하고 있다.
앞서 지난해 3월 르네상스 PEF는 SPP조선에 200억원 이상을 투자, 지분 10% 가량을 확보했다. 주당 장부가는 2만1000원.
이 관계자는 "상장하면 투자액의 4~5배 가량 이익을 낼 것으로 기대하고 있다"며 "투자금 회수 여부는 상장 시점의 주가를 보고 결정할 것"이라고 밝혔다.
SPP조선의 지분 구조는 모기업인 SPP중공업 34%, 골드만삭스 30%, 이낙영 SPP조선 회장 21%, 르네상스PEF 10% 등으로 구성돼 있다. 이 가운데 골드만삭스는 지난 2006년초 500억원을 투자해 2대 주주로 올라섰다.
국제 조선·해운 시황 전문 분석 기관인 영국 클락슨에 따르면 SPP조선은 세계 조선소 순위에서 24위권에 해당하는 중형 조선소다. 지난 2006년말 기준으로 매출액 2483억원, 영업이익 182억원, 순이익 101억원의 경영실적을 기록했다.
프리 IPO 투자를 통해 성과를 거둔 사례는 아직 손에 꼽을 정도로 적다. 미래에셋맵스자산운용이 설립한 파트너스 PEF가 투자한 성진지오텍이 유일한 것으로 알려졌다.
맵스 PEF는 지난 2006년 3월 비상장기업인 성진지오텍에 203억원(보통주 427만5000주, 우선주 150만주)을 투자, 100% 이상의 수익을 거두고 있다. 성진지오텍 주가는 지난 5일 종가 기준으로 1만2300원을 기록 중이다.
업계 관계자는 "비상장회사에 투자한 사모펀드의 엑시트(투자금 회수) 방법은 M&A나 IPO가 유일하다"며 "거래소에 상장했다는 것은 PEF가 투자 대상을 잘 골랐다는 것을 의미한다"고 설명했다.
이 관계자는 "특히 비상장에서 상장으로 간다는 것은 지분 매각시 회사 가치를 시가로 평가할 수 있다는 점에서 긍정적"이라며 "투자 리스크가 크기 때문에 수익률도 높은 편"이라고 말했다.
한편 르네상스 PEF는 지난 2월 웅진캐피탈과 대우증권이 설립한 PEF로 각각 510억원, 500억원을 투자했으며 출자약정총액은 3010억원이다.
르네상스 PEF의 지난해 투자종목은 SPP조선이 유일하다. 국내 시장의 밸류에이션이 높아 투자 대상을 찾기가 어려웠다는 설명이다.
대우증권 관계자는 "우리가 생각하는 밸류에이션에 근접하는 회사가 3~4개 있어 올해 상반기에 투자가 집중적으로 이뤄질 것"이라고 말했다.
<저작권자 © ‘돈이 보이는 리얼타임 뉴스’ 머니투데이>
2008. 10. 8.
[FT]It is time for comprehensive rescues of financial systems
It is time for comprehensive rescues of financial systems
By Martin Wolf
Published: October 7 2008 19:13 | Last updated: October 7 2008 19:13
As John Maynard Keynes is alleged to have said: “When the facts change, I change my mind. What do you do, sir?” I have changed my mind, as the panic has grown. Investors and lenders have moved from trusting anybody to trusting nobody. The fear driving today’s breakdown in financial markets is as exaggerated as the greed that drove the opposite behaviour a little while ago. But unjustified panic also causes devastation. It must be halted, not next week, but right now.
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The time for a higgledy-piggledy, institution-by-institution and country-by-country approach is over. It took me a while – arguably, too long – to realise the full dangers. Maybe it was errors at the US Treasury, particularly the decision to let Lehman fail, that triggered today’s panic. So what should be done? In a word, “everything”. The affected economies account for more than half of global output. This makes the crisis much the most significant since the 1930s.
First of all, the panic must be dealt with. This has already persuaded some governments to provide full or partial guarantees of liabilities. These guarantees distort competition. Once granted, however, they cannot be withdrawn until the crisis is over. So European countries should now offer a time-limited guarantee (maybe six months) of the bulk of the liabilities of systemically important institutions. In the US, however, with its huge number of banks, such a guarantee is neither feasible nor necessary.
This time-limited guarantee should encourage financial institutions to lend to one another. If it does not do so, central banks must lend freely, even on an unsecured basis, to institutions too systemically significant to be allowed to fail.
By these means, the flow of credit should restart. But governments cannot allow banks to gamble freely with the public sector’s balance sheet. During the period of the guarantee, governments must exercise close oversight over the institutions they have decided to protect.
The second priority is recapitalisation. The big lesson of the crises of recent history – as an excellent chapter in the International Monetary Fund’s latest World Economic Outlook shows – is that “policymakers should force the early recognition of losses and take steps to ensure that financial institutions are adequately capitalised”.
Recapitalisation is essential if institutions are to be deemed creditworthy after the guarantees are withdrawn. Governments should insist on a level of capitalisation that allows for further write-offs. They should then either underwrite a rights issue or purchase preference shares. Either way, governments should expect to make a profit on their investments when these institutions return to health, as they should do.
Such recapitalisation is an alternative to forced debt-to-equity swaps. I do find the latter an attractive idea. Yet today it is sure to increase the hysteria, unless it can be made credibly once-and-for-all. Some will also note that my ideas are designed to avoid a shrinkage of the balance sheets of the core financial system. Some shrinkage of the financial system is inevitable, however, particularly in the US and UK. It should be allowed to occur in the so-called “shadow banking sector”.
This leads to a third question: what to do about the bad assets? Sometimes it makes sense to take such assets from the banks. That is what the new US “troubled asset relief programme” (Tarp) is designed to do. Because bad US assets are widely distributed across the world, the US programme to create a market for these assets – and perhaps raise their prices to a higher equilibrium level – will benefit many other banking systems.
Elsewhere, however, the quantity of bad locally generated assets seems small. Such schemes are then unnecessary. If banks are adequately recapitalised such schemes are also redundant. Similarly, if banks are adequately capitalised, concerns about mark-to-market accounting are less important, since balance sheets can cope with the needed write-downs. But it may be sensible to state explicitly that regulators will not focus only on current valuations in determining the capital requirements.
The biggest question about these proposals is whether governments can afford them. Some economists argue that many banks are not only too big to fail, but too big to save. They do so by pointing to ratios of gross bank liabilities to host-country gross domestic product (see chart). But what matters is the ratio of worst-case fiscal recapitalisation to GDP. Unfortunately, even this can be huge.
Consider the UK, where the combined assets of the big five banks is four times GDP. A recapitalisation equal to 1 per cent of their assets would cost the government an increase in debt equal to 4 per cent of GDP and a 5 per cent recapitalisation would cost 20 per cent of GDP. If any country’s banking system started to suffer losses on such a scale, debt-to-equity swaps might become inescapable. They may now be the only way forward for Iceland.
Some argue that members of the eurozone have a special challenge: individually, after all, they have no access to a central bank. The remarkable recent jumps in spreads between rates on German bunds and Italian bonds, to a peak of just under 90 basis points, suggests that markets may agree. But inflation is also a form of default. A country with a central bank, such as the UK, may well suffer higher long-term interest rates if doubt grows about its ability to finance needed bank rescues.
Yet if a recapitalisation of a substantial number of eurozone banks were needed, some member states might be unable to put up the money. There would be danger for the rest if that government chose either to do nothing or to initiate a debt-equity swap. Such actions might then raise panic everywhere. Fiscal solidarity might prove inescapable. In any case, co-ordination on how to proceed is essential if a healthy eurozone banking system is to re-emerge.
This panic is also going to have a big impact on economies. So central banks,other than the Federal Reserve, should lower interest rates. Only last week I thought a half-percentage point cut in rates made sense for the UK. If I were on the monetary policy committee today, I would argue for a full percentage point. The world has changed, greatly for the worse.
The finance ministers and central bank chiefs of the Group of Seven leading high-income countries will soon convene in Washington. For once, these are the right people. They must travel with one task in mind: restoring confidence. History will judge their success. These people may go down as the authors of another great depression. It is a destiny they must now avoid, for all our sakes.
martin.wolf@ft.com
Copyright The Financial Times Limited 2008
2008. 10. 4.
[FT]America’s chance to kick its Asian addiction
America’s chance to kick its Asian addiction
아시아산 마약을 차버릴 미국의 기회
By David Pilling
Published: October 1 2008 18:43 | Last updated: October 1 2008 18:43
Did America hang itself with Asian rope? I put this to a Chinese official last week and, quick as a flash, he responded: “No. It drowned itself in Asian liquidity.”
미국이 아시아 줄을 쥐고 있었나? 중국관리: (재빠르게) 아뇨. 아시아 유동성에 스스로 빠졌죠.
Asia’s part in America’s financial downfall has been two-fold. First, shiploads of cheap goods from China and other low-cost producers helped keep a lid on US prices. That lulled the Fed, with its tight focus on the consumer price index, into thinking it could have it both ways: high growth with low inflation.
미국이 금융위기를 맞게된데 아시아의 책임은 두개다. 첫째는 중국에서 생산한 싼 물건과
저비용 공급자들이 미국의 가격을 감추도록 도운거다. 그게 소비자 물가 지수만 봐 온 페드를 고성장과 저물가로 안심시켰다.
keep a lid on:감추어 두다 lulled:안심시키다
Second, Asian bank reserves of $4,300bn (£2,400bn, €3,000bn) – enough to fund Treasury secretary Hank Paulson’s bail-out six times over – combined with petrodollars to provide the US with almost endless liquidity. This poured into US Treasuries and Fannie and Freddie bonds, suppressing US interest rates, inflating the housing bubble and funding buy-now pay-later consumption.
둘째, 아시아 은행들은 미국채를 사들이면서 미국에 유동성을 공급했다. 아시아 돈이 미국채에 몰리자 이자율은 떨어졌다. 값싼 이자율 때문에 주택가격이 오르고 주택담보대출로 소비가 늘었다.
Western banks and hedge funds used Asia, particularly Japan, as an enchanted pool of money. Through the so-called carry trade, they dipped their ladles into its ultra-low interest rate waters and splashed the proceeds around on exotic, high-yield instruments. For a while it all worked beautifully. You know the rest.
헤지펀드와 서방은행은 엔케리 트레이드로 아름다운 성과를 누렸다.
In one sense, this is a story of Asian prudence versus US recklessness. By accumulating vast savings – China and Japan alone boast 40 per cent of global central bank reserves – Asians have lived below their means so that Americans could live beyond theirs. Asia bankrolled US budget and trade deficits and provided the cash for banks and individuals to go on a spending spree and for Washington to fight wars in Afghanistan and Iraq.
중국과 일본이 대출해 주자 미국은 무역적자와 재정적자에도 불구하고 소비하고 전쟁을 벌일 수 있었다.
deficit:적자
“Arguably, the US overextended itself in international relations and in the management of its domestic situation. It spent way beyond its means,” says Fang Xinghai, director general of Shanghai’s Financial Services Office. “For a while, the US thought this was great and that this trade could go on forever.”
팡싱하이(상하이 금융서비스 사장)"미국은 자신을 제어 할 수 없을 정도로 팽창했다.", "미국은 이런 방식이 영원할거라고 착각한거다."
While it lasted, China and others were able to grow at supercharged rates by lending to Americans so that they could import its products. Now that wheeze is over, Asia will suffer too. But even if China, which grew at 12 per cent last year, loses 4 percentage points of growth, it will still be clipping along at 8 per cent. If the US or Europe loses the same amount, it will be deep in recession.
중국은 미국에 돈을 빌려주었기에 수출할 수 있었다. 따라서 미국이 어려워지면 중국도 힘들거다. 중국경제성장률은 당초 예상치인 12%에서 4%하락한 8%정도 될 것이다. 하지만 유럽이나 미국이 4%하락한다면? 심각한 경제침체가 오는거다.
Wall Street’s 9/11 could thus turn out to be an important milestone on the road to Asia’s century. US presidential candidates invoked that possibility last week in their debate. Barack Obama referred to China’s recent space walk as a sign that it was catching up while America floundered. John McCain, attacking waste in Washington, said: “We owe China $500bn.” Mr Obama went one better, saying (more accurately) China “now holds $1,000bn of our national debt”. Linking finance with power, he added: “There has never been a country on earth that saw its economy decline and yet maintained its military superiority.”
9/11사태는 아시아의 시대로 가는 이정표이다. 오바마 "미국은 중국에 1조달러의 빚을 지고 있다. 세계 어느 나라도 경제력이 후퇴할 때 군사력을 유지하지는 못했다."
milestone:이정표
There has been a cautious reappraisal in parts of Asia too. “More people understand that America is not as great as it was 10 years ago,” says Shen Dingli of Fudan university in Shanghai. “This is not a time for China to be on a par with America. But the relative shift of the centre of gravity does bring China more confidence.”
쉔딩리(푸단대) 미국은 10년 전처럼 강하지 않다. 그렇다고 중국이 미국처럼 강한 것은 아니다. 그러나 세계의 중심축은 움직이고 있다. 중국은 더욱 자신있어질거다."
For the moment, though, the fates of Asia and the US remain more aligned than opposed. Chinese, Singaporean and other Asian investors have lost billions on their stakes in failing western institutions. Asian governments have insisted on the need for a US bail-out to protect their sovereign investments.
살찐 아시아와 미국은 얼마간은 적대적이기보단 우호적인관계를 유지할거다. 아시아 투자자들은 미국 금융위기로 미 금융기관에 투자한 자금을 잃었다. 아시아 정부는 그들의 국부펀드자금을 보호하기 위해 미국의 구제금융법안을 촉구하고 있다.
US woes bounce back in other ways, too. In August, Japan recorded its first seasonally adjusted monthly trade deficit in a quarter of a century after shipments to the US slid 22 per cent. Net exports are not expected to contribute anything at all to Chinese growth this year. “China feels the same pain as America,” says Prof Shen. “It is not a case of: ‘Your loss is my win,’ but rather: ‘You lose, I lose.’ ”
미국은 다른 방면으로도 아시아의 꼬리를 물고 있다. 일본과 중국은 대미수출이 감소하면서 각각 무역적자를 기록하거나 성장에 대한 수출기여도가 사라졌다. 미국이 힘들어지면 아시아국가도 힘들어지는거다.
More fundamentally, the pattern of flows from Asia to the US and other deficit countries could change. If the US can wean itself off what has been an unhealthy addiction, the shock could yet turn out to be to its long-term advantage. It has already started increasing exports and importing less.
좀 더 근본적으로 미국은 이번기회에 체질을 개선할 수도 있다. 만약 미국이 마약에 취해있던 과거에서 벗어날 수 있다면 미국은 더욱 건강해 질거다. 일단 수출이 증가하고 수입이 감소하기 시작했다.
In another sign of change, the big gap between returns that drove Japanese capital to the US has narrowed sharply for bonds and disappeared altogether for equity, says Peter Tasker of Kleinwort Dresdner. “This could be the crumbling of the configuration that has seen capital surplus countries funding US consumption,” he says.
일본과 미국의 주식및 채권수익률 차가 줄어들면서 아시아돈이 미국의 소비를 촉진했던 공식이 바뀔 수도 있게 되었다.
For that to happen Asians would have to start spending more at home. That could be brought about by a deep recession, which would oblige them to run down savings. Alternatively, Asian governments could encourage their citizens to break savings habits and go on a US-style binge.
그렇게 되려면 아시아가 저축을 줄이고 소비를 늘려야 한다.
@김학주 센터장은 중국의 경제가 소비력을 가지기 위해서는 4천만불은 되야 한다고 했다. 4천만불이 되지 않으면 저축하기도 빠듯하기 때문이다.
Chinese citizens, whose consumption accounts for a measly third of national output – against 70 per cent in the US – could certainly spend more. But Beijing, which has already taken steps to prick the housing bubble, appears in no hurry to encourage reckless spending.
reckless: 무모한
중국인들은 돈을 미국소비량의 70%만 쓰고 있기 때문에 더 많이 쓸 수 있다. 그러나 베이징은 주택가격거품이 터질 위험이 있다.
Says Mr Fang: “I’m not sure you should encourage people to borrow in order to spend. That is what bankrupted the US.”
팡:나는 사람들에 돈을 빌려줘야 할 지 모르겠다. 미국이 파산한게 소비를 촉진하려고 돈을 빌려줬기 때문이다.
Copyright The Financial Times Limited 2008